Many aircraft buyers and sellers are so fixated on the price that they neglect other key terms of their aircraft purchase agreement. An important commercial term that everyone should know going in is the point at which a buyer can’t cancel the transaction without losing their deposit.
There are two main deal variations concerning when a deposit is nonrefundable and whether the buyer must buy the plane or lose the deposit, assuming the seller delivers the plane in proper condition.
Soft Deals
The first, which was more common in the pre-COVID buyer-friendly market, is a “soft” deal. Essentially, the buyer can perform a pre-purchase inspection, receive the results, reject the aircraft for any reason, or even for no reason, and get their deposit back.
In this case, the buyer would typically reimburse the seller for some of the flight costs incurred and ensure the inspection facility is paid before receiving the deposit.
Hard Deals
The second, which became the norm in the seller-friendly post-COVID buying frenzy, is a “hard” deal. After the inspection, the buyer may only reject the aircraft if it will be unable to meet the required conditions (often the “delivery conditions”) within a certain timeframe, or if there is material damage or material corrosion. In other words, only for objective and pre-negotiated reasons. It doesn’t matter what other things might scare a buyer; if the seller repairs anything required, then the buyer has to complete the transaction or lose their deposit.
In a hard deal, it is important for a buyer to perform some initial due diligence, particularly on subjective items. I often refer to this as the “sniff test”—does the plane smell like the Marlboro Man lived in it? Or does it smell like a wet dog?
This is also the time to evaluate cosmetic items. A rough paint job, scratched seats, or pen marks on the sidewalls will not allow a buyer to reject the plane after the inspection in a hard deal.
Initial due diligence should include reviewing the logbooks. Although logbooks could technically be complete with no “material damage,” there still could be enough “hair” in them to cause a buyer to walk away. In a hard deal, unless logs are incomplete or there is evidence of material damage, the buyer will be stuck with the plane or lose the deposit.
Choosing the Right Deal
There are solid reasons for soft and hard deals, particularly when balanced against the scope and speed of the inspection, demand for the aircraft, and the promised delivery conditions.
For instance, if a seller is promising only to fix airworthy items, a soft deal could make sense. If a seller is promising to deliver the plane with everything working in tip-top shape and there are multiple offers, a buyer offering a hard deal could make sense. In the current market, we often see both.
Whether you negotiate a soft or hard deal as buyer or seller, make sure it is addressed and that you understand it. There is not much worse for a buyer than realizing you can’t walk away from a plane you don’t want, or for a seller than losing a buyer when you thought the sale was firm.
Work with Professionals
At the risk of sounding like a broken record in these articles, it is imperative to work with an experienced aircraft broker and attorney to negotiate these items at the outset in the letter of intent, as they are often hills to die on for some buyers or sellers.
It is better to find out early than to discover two weeks later, when negotiating the purchase agreement, that the parties cannot agree on a hard or soft deal.
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This article is not intended, nor should it be construed or relied upon, as legal advice. The comments, recommendations, and analysis expressed in this article are those of the individual author, John Farrish, and are purely informational. This article does not create an attorney-client relationship between you and the author or his law firm. If specific legal information is needed, each person should retain and consult an attorney with knowledge of the subject matter.
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